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a product’s patent life expires and generic forms enter the market. The company’s next-generation drug may not be better, but it can be sold at the higher price of a branded drug, critics say.

Hiller, on the other hand, says pharmaceutical companies often bypass a chance to make valuable improvements on their own drugs, only to see a competitor do so and reap the rewards.

As an example, Hiller points to GlaxoSmithKline’s dutasteride (Avodart), a drug for the urinary tract symptoms linked to a benign enlargement of the prostate gland. The drug is similar to the Merck product finasteride (Proscar), but with the addition of fluorine atoms, Hiller says. Sales of dutasteride exceeded $1 billion in 2010.

“Had Merck done that, they would have had a great life cycle story and been able to maintain their franchise,” Hiller said.

A competitor can patent new molecules based on a rival’s older drugs. But the competitor must make changes to the original drug that are truly novel, and that would not have been obvious innovation routes for the creators of the original drug, Hiller says. SciFluor is filing for patents on the new compounds it has created, and is seeking partners for their development.

SciFluor’s first deals so far, however, have come from a second technology unit based on discoveries also licensed from Harvard. The company is using radioactive isotopes of fluorine to create custom tracers to find out how a drug spreads throughout the body, and whether it reaches its targets. SciFluor is making tracers for a large Cambridge biotech company and a midwestern pharmaceutical company, Hiller says. He says he can’t divulge the company names at this point.

Hiller, a former executive at Merck, Millennium Pharmaceuticals, and the device maker Heartscape Technologies, has become an avid evangelist for follow-on drug development. He points to success rates detailed in a 2002 McKinsey paper by Bruce Booth, who is now a partner at Atlas Venture in Cambridge, MA. Booth and his McKinsey colleagues concluded that most of the drug industry’s profits in the 1990s came from modified versions of first-in-class drugs that delivered better efficacy or lower side effects than the original product.

What Booth called “precedented drugs” also delivered 35 percent more revenues than drugs based on new scientific approaches, according to his study. Among those high-earning follow-on drugs were the antihistamine Allegra, the antidepresant Paxil, and the blockbuster cholesterol drug Lipitor, Booth said.

Booth and his co-authors concluded that drug companies should continue to include follow-on drug candidates in their development pipelines, along with novel experimental therapies.

Lipitor, Prozac, and Cipro are among the successful drugs that … Next Page »

Bernadette Tansey is Xconomy's San Francisco Editor. You can reach her at btansey@xconomy.com. Follow @Tansey_Xconomy